Filing taxes for your construction business is one of the requirements of business ownership. Lower your tax bill when you know which business deductions you can take.
Business Expenses
Internal Revenue Service (IRS) rules state that you can deduct all “ordinary and necessary” business expenses. An ordinary expense is common in the construction industry while a necessary expense helps your construction business succeed.
- Advertising.
- Bad business debts.
- Equipment rental fees.
- Insurance premiums.
- Legal and professional fees.
- Safety equipment.
- Tool repair and maintenance.
- Tools.
- Trade association dues.
- Travel expenses.
- Uniforms.
Remember not to deduct expenses that clients reimburse you for. For example, if you purchase materials for a client’s deck repair project and charge the client for those materials, you cannot also deduct those materials on your taxes.
Home Office
As a construction professional, you probably spend most of your workday on the job site. However, you can deduct a home office if you use the space exclusively and regularly for business purposes and meet IRS requirements for exclusive business use.
Labor Costs
You can deduct the money you pay employees and subcontractors. Be sure to classify employees and subcontractors properly, though, or you could face fines. Also consider your business insurance needs for contractors and liability — see Construction Contractors Liability Insurance.
Mixed-Use Expenses
Items such as tools, vehicles and equipment may be used for both business and personal purposes. When an expense is mixed-use, deduct only the business portion. For example, if you use your cellphone equally for business and personal calls, you can deduct half your phone bill on your business tax return.
Personal Credit Card
The interest you pay on a personal credit card, home equity loan or other personal credit source can be deducted only for purchases made exclusively for your construction business. Keep clear records showing which charges were business-related.
Vehicle
For construction vehicles you can choose either the actual cost method or the standard mileage deduction. With actual cost, track fuel, repairs, insurance and other operating expenses and apply the percentage of business use. With the standard mileage method, track business miles driven and take the standard deduction per mile. For business auto insurance options, see Contractors/Construction Trades Business Auto.
Keep Accurate Records
To make tax filing easier, track your income and expenses throughout the year and keep receipts organized. Schedule time each month to sort and record receipts so your records are accurate when you prepare your return.
Your construction business qualifies for numerous tax deductions. Talk with your accountant or talk to an agent to confirm which deductions apply to your situation as you prepare your tax return and work to lower your tax bill.
Frequently Asked Questions
What counts as an “ordinary and necessary” expense?
An ordinary expense is common in your trade and a necessary expense helps your business operate; both types are generally deductible if they are ordinary and necessary for your construction business.
Can I deduct part of my personal vehicle expenses?
Yes — you can deduct either the business portion of actual vehicle expenses or use the standard mileage rate for business miles driven, but you must keep records to support your choice.
How do I handle reimbursed costs from clients?
Do not deduct expenses that clients reimburse you for; instead, record the reimbursement and associated expense so they offset each other on your books.